Consider it or not, falling into a debt trap is easier than you could ever dream. There is likelihood that you’ll become injured at work. Then, you’ll be unable to make an income. Alternatively, there is a chance that your business enterprise will fall flat. Thousands of people get into debt each and every day in India, so nobody is invulnerable. Debt consolidation is a great way for those in debt to get a head start in paying off that debt. Below, you will learn all about consolidation and its perks.
Knowing Debt Consolidation
So, what is debt consolidation? Well, it is actually taking out a loan and getting yourself into additional debt. Of course, there is a catch. Through debt consolidation, the loan is utilised to pay off all of your debts. If you were initially in debt with three or four companies, the debt would be consolidated into a single debt. Then, you would be requisite to pay back the lender for the consolidation loan and nothing else. Ultimately, debt consolidation is eliminating multiple debts and transforming it into a single debt. This might not seem like a big deal initially, but it offers a wealth of benefits.
Secured & Unsecured Loans
Keep in mind that debt consolidation can be made with a secured or unsecured loan. A secured loan is safer for the lender, since you’ll be required to put certain property up as collateral. This could be your automobile or your home. Unsecured loans are based on your credit profile (credit score, income, debt to income ratio, etc). While the unsecured loan might seem like a better idea, it is significant to remember that this type of loan usually comes with a higher interest rate for most people. However, personal loans can still be useful since the interest is amortised over time.
Lower Interest Rates
So, what are the main perks of debt consolidation? Well, the benefits depend solely on the type of loan in question. If you’ve taken out a secured loan, there is a good chance that your interest rates will be lowered significantly. As mentioned above, unsecured loans can still help you get out of debt sooner. These type of loans to consolidate credit card debt, can even help you improve your score by up to 40 points (according to Payoff). Plus, you’ll lower the interest rate by a considerable amount and that will help tremendously. The interest causes your debt to accumulate over a period of time.
With a lower interest rate, your debt will remain lower so you can get it paid off quicker. In some cases, the interest may be tax deductible!
If you opt for the unsecured loan, you’ll be able to get the money you need without any risks to your property. As mentioned above, there is no need to put up any property as collateral with an unsecured loan. Even if you default, you will not have to worry about losing your vehicle or home. Just remember that unsecured loans come with higher interest rates. Therefore, if it often better to go ahead and put your property up as collateral to avoid excessively high interest rates.
Nevertheless, both forms of debt consolidation are very helpful.
Make A Single Payment
Often time’s people end up in debt, because they can’t keep track of all the bills they have and when exactly each is due. This leads to a lot late charges and additional fees that would not normally apply. However, when you get your debt is consolidated, this is something that you do not have to worry about, because everything will be complied right into one easy payment. This makes it incredibly easy to keep track of everything. If you’re a forgetful individual, you will most definitely benefit from debt consolidation. This procedure will make your bills much easier to keep up with, so you can guarantee each is paid on time each month!